Exxon calls for rate reduction

North Slope producer says oil taxes already too high

Posted: Wednesday, October 24, 2007

Exxon Mobil Corp., the world's largest publicly traded oil company, trumped Gov. Sarah Palin's order to raise taxes with its own demand on Tuesday: Lower the existing rate.

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Other North Slope producers - BP PLC and ConocoPhillips - have already said the current rate - 22.5 percent on net profits - is too high, adding that increasing the amount of the current Petroleum Profits Tax - or PPT - could hurt future investment. The companies earn tax credits for how much is reinvested back in Alaska.

But Craig Haymes, Exxon Mobil's top executive for the company's Alaska operations, took the extra step in a House Oil & Gas Committee hearing conducted during the special session to consider changing the tax.

"To encourage full development of Alaska's resources, the PPT needs to be lowered," Haymes said.

Haymes didn't offer a figure, but said the company believed even 20 percent was too high when the Legislature spent eight months on the tax debate last year.

Some lawmakers believed Haymes simply said what others in the industry have long thought, but his position still touched some raw nerves.

That's because the company already remains a lightning rod for public ire over the unresolved $2.5 billion civil judgment from the 1989 Prince William Sound oil spill.

The Irving, Texas-based, Exxon Mobil has asked the U.S. Supreme Court to hear its final appeal and review the 9th U.S. Circuit Court of Appeals decision, which reduced a $5 billion award by half.

Committee member Rep. Mark Neuman, R-Wasilla, characterized the Haymes assessment as a "punch in the guts."

Other lawmakers in the building were equally stunned.

"Are you kidding me?" asked Minority Leader Beth Kerttula, D-Juneau. "That's ridiculous, ridiculous."

Also not lost on the lawmakers were the extraordinary profits that oil companies are earning - Exxon Mobil cleared $10 billion in the last quarter, while prices at the gasoline pumps hover near $3 a gallon, and much higher in Alaska villages.

But some saw Exxon Mobil's play as predictable strategy.

"They are just playing the game," said Sen. Tom Wagoner, R-Kenai. "We did PPT that way to get them to invest more. If they invest more, they will pay less and produce more."

Oil companies and industry groups have spent the last two days imploring lawmakers to not raise the rate from 22.5 percent to 25 percent, with the higher rate suggested Palin.

The proposed rate change represents the second change in as many years. But Palin says the plan approved last year faces an $800 million shortfall and is also tainted by the federal corruption probe linked to the tax.

Without officially pulling any projects off the drawing board, the companies have said a tax increase would affect investment decisions, particularly in the North Slope, home to Prudhoe Bay, the nation's largest oil field.

"Each time taxes are raised, the attractiveness of any prospective well or project diminish and the likelihood of it not being funded increases," Haymes told the committee.

Like other oil companies, Haymes said Exxon Mobil is not trying to leverage any threats against the state.

"We are not going to pull out of Alaska," he said. "We've been here for 50 years and we look forward to the future for many years to come.

"I think it really gets down to how do you attract the increasing need of investment to mitigate oil production decline. Alaska is competing with the world."

Rep. Jay Ramras, R-Fairbanks, cautioned the public and the Legislature against being too quick to chastise the company whose multibillion dollar a year profits do trickle down to investors.

One of those investors is the state's Permanent Fund, which produced dividend checks exceeding $1,650 this year.

Exxon Mobil heads the list of North Slope oil producers who are among the fund's most stock sound investments that boosted this year's check by more than $500.

"Everybody in this room that's an Alaskan that enjoys the Permanent Fund has by extension has an interest in Exxon Mobil," Ramras said.

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